MICROCAP STOCKS: INVESTORS GUIDE 

Information is the investor's best tool when it comes to investing wisely. Since many companies do not file with the SEC,  accurate information about microcap stocks (low-priced stocks issued by the smallest of companies) may be difficult to find. . When reliable information is scarce, fraudsters can spread false information about companies.

WHAT IS A MICROCAP STOCK?

The term microcap stock applies to companies with low capitalizations, meaning the total value of the company's stock. Microcap companies typically have limited assets. For example, in cases where the SEC suspended trading in microcap stocks, the average company had only $6 million in net tangible assets — and nearly half had less than $1.25 million. Microcap stocks tend to be low priced and trade in low volumes.

WHERE DO MICROCAP STOCKS TRADE?

Many microcap stocks trade in the over-the-counter (OTC) market and are quoted on:

OTC Bulletin Board   
The OTCBB is an electronic system that displays real-time quotes, last-sale prices, and volume for many OTC securities that are not listed on the Nasdaq Stock Market or a national securities exchange.   Although the NASD oversees the OTCBB, the OTCBB is not part of the Nasdaq Stock Market. Fraudsters often claim that an OTCBB company is a Nasdaq company to mislead investors that the company is bigger than it is.

The Pink Sheets
The Pink Sheets, named for the color of paper on which they've been printed, are listings of price quotes for companies that trade in the OTC market.  A company named Pink Sheets LLC, formerly the National Quotation Bureau, publishes the pink sheets in hard copy and electronic format. Pink Sheets LLC is not registered with the SEC as a stock exchange, nor does the SEC regulate it.

HOW ARE MICROCAP STOCKS DIFFERENT THAN OTHER STOCKS?

Lack of Public Information   
The biggest difference is the amount of reliable available information about the company. Larger public companies file with the SEC. Professional stock analysts research larger public companies and it's easy to find their stock prices in the newspaper. Information about microcap companies can be extremely difficult to find, making them more vulnerable to investment fraud schemes.

No Minimum Listing Standards   
Companies that trade their stocks on major exchanges and in the Nasdaq Stock Market must meet minimum listing standards. For example, they must have minimum amounts of net assets and minimum numbers of shareholders. In contrast, companies on the OTCBB or the Pink Sheets do not have to meet any minimum standards.

Investment Risk   
While all investments involve risk, microcap stocks are among the most risky. Many microcap companies tend to be new and have no proven track record. Some of these companies have no assets or operations. Others have products and services that are still in development or have yet to be tested in the market. Another risk that pertains to microcap stocks involves the low volumes of trades. 

If you're working with a broker or an investment adviser, you can ask  to get written information about the company. Read the prospectus and the company's latest financial reports. Unsolicited e-mails, message boards, and news releases should not be used as the sole basis for decisions. You can also get information on your own from these sources:

From the company   
Ask the company if it is registered with the SEC and files reports. If the company is small and unknown to most people, you should also call your state securities regulator to get information about the company, its management, and the brokers or promoters.

From the SEC   
A great many companies must file their reports with the SEC. Using the EDGAR database, you can find out whether a company files with the SEC and get any reports in which you're interested. For companies that do not file on EDGAR, check with the SEC to see if the company has filed an offering circular under Reg A.

From your state securities regulator   
We strongly urge you to contact your state securities regulator to find out whether they have information about a company and the people behind it.  Even though the company does not have to register its securities with the SEC, it may have to register them with your state. Your regulator will tell you whether the company has been legally cleared to sell securities in your state. 

From other government regulators   
Many companies, such as banks, do not have to file reports with the SEC. But banks must file updated financial information with their banking regulators. Visit the Federal Reserve, the Office of the Comptroller of the Currency , or the Federal Deposit Insurance Corporation.

From reference books and commercial databases   
We have a large investment book store with tons of references on investing. You can also visit your local public library or the nearest law or business school library.  You can access commercial databases for more information about the company's history, management, products, revenues, and credit ratings. 

The Secretary of State Where the Company Is Incorporated   
Contact the secretary of state where the company is incorporated to find out whether the company is a corporation in good standing. You may also be able to obtain copies of the company's incorporation papers and any annual reports it files with the state. 
 

Please note that OldStocks.com does not sell investments or investment advice.  It is highly recommended that you contact a registered investment professional for these services.   Items sold in our catalog are cancelled or obsolete, and only sold as collectible items.

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